Highlights second-quarter edition
Deloitte Belgian CFO Survey Q2-2010
The average CFO now attaches only a 20% probability to there being a “double dip” - a renewed period of contracting economic activity. A vast majority of CFOs expect the economy to further recover – albeit very slowly. Fewer than half of the respondents expect accelerated growth for products and services in the next 12 months. Two quarters down the year, 80% of CFOs have made the budget – whilst 40% of CFOs even report having exceeded their budgets.
This increase in Belgian CFO confidence is somewhat inconsistent with a more cautious mood in international financial markets and growing international concerns about renewed economic weakness.
The increase in CFO confidence is also inconsistent with the results of the latest Deloitte CFO surveys in the UK and the Netherlands: in the UK, financial optimism has dipped for the second consecutive quarter, taking it to the lowest level in a year. Meanwhile UK CFOs have edged up the probability they assign to a “double dip” from 33% in the first quarter to 38% today. Recent volatility in financial markets and concerns about fiscal tightening in the UK and abroad are clearly weighing on CFO sentiment. It is for the first time since the launch of the Belgian CFO survey that Belgian survey results deviate to this extent from UK results.
CFOs are maintaining a strong focus on costs. The high proportion (almost 40%) of companies that reported in the first quarter survey to consider shifting production or support functions over-shore has been confirmed in the latest survey. For most of these CFOs, cost reduction is the main driver.
But expansionary strategies including capital spending, expanding into new markets and launching new products and services, have shifted up the priority list. A majority of CFOs expect M&A activity to rise over the next year. 80% of the surveyed CFOs are currently engaged in corporate M&A activity: one fourth is currently in the process to make an acquisition, while almost 70% are investigating potential acquisition targets.
Recent financial turbulence has made CFOs much more cautious about financing their companies using equity. Equity is out of favor as a means of financing. Corporate debt and bank borrowing are currently the most attractive means of financing – the latter further increasing its attractiveness despite higher reported costs related to bank borrowing. A new point of attention: for 70% of the CFOs upcoming Basel III regulation in the financial services sector will have negative impact on cost and availability of bank credit.
The last years have been a period of exceptional volatility. CFOs are not convinced the problems are over, but are looking for opportunities in what lies ahead.